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2024 (6) TMI 697 - AT - Income TaxTaxability of income in India - Taxability of System Fund support fee and Technology Services Fees - receipts on account of Marketing, Distribution Marketing, Frequency Marketing Programme (i.e. IHG Rewards) and SCHI Facility charges - DRP following the orders of earlier years held that marketing and reservation related receipts are ancillary and subsidiary to Royalty received by the group entity for the use of brand name and taxable as FIS under Article 12(4)(a) of India-USA DTAA - HELD THAT - HELD THAT - AO/DRP in the Assessment order(s) for A.Y. 2006-07 to A.Y. 2011-12 held that Marketing and reservation related receipts is not taxable as Royalty / Fees for Technical Services , following the aforesaid orders of the ITAT. Mumbai ITAT in their combined order dated 2024 (2) TMI 582 - ITAT MUMBAI for A.Y. 2012-13 to A.Y. 2015-16 again held that Marketing and reservation related receipts is not taxable as Royalty / Fees for Technical Services under India-USA DTAA and deleted the additions made in the assessment order(s). . Keeping in view of the above, the issue of taxability of marketing and reservation related receipts as Royalty/FTS is squarely covered by the decision of ITAT, the appeal of the assessee on this ground is allowed. Taxability of Travel Agent Commission (TACP) - taxable as FTS/FIS under the Act and India-USA DTAA - HELD THAT - The services were rendered by the travel agents to the Indian Hotels i.e. the Assessee did not render any service to the Indian hotels, as envisaged under section 9(1)(vii) of the Act, The Assessee made payments to travel agents on behalf of the Indian hotels; and Subsequently, the Assessee recovered such payments made to distribution channels from Indian hotels on costto-cost basis without any element of income. Thus, it can be found that the Assessee has rendered services in relation to booking of hotel rooms to the Indian Hotels in consideration of commission, it cannot be treated as FTS under the Act. The following judicial precedents held that commission charged by commission agents outside India is not taxable in India like Panalfa Autoelektrik Ltd 2014 (9) TMI 706 - DELHI HIGH COURT , Group Ism (P.) Ltd. 2015 (6) TMI 10 - DELHI HIGH COURT , Model Exims 2014 (6) TMI 290 - ALLAHABAD HIGH COURT and Le Passage to India Tours and Travel (P.) 2015 (2) TMI 983 - ITAT DELHI Thus it can be concluded that the amount charged by the Assessee as TACP for booking hotel rooms for third-party Indian Hotels cannot be said to be in the nature of managerial, technical or consultancy in nature for treating the same as FTS under the provisions of section 9(1)(vii) of the Act. Decided in favour of assessee.
Issues Involved:
1. Taxability of System Fund support fee and Technology Services Fees. 2. Taxability of Travel Agent Commission (TACP). 3. Charging of interest under section 234A and 234B. 4. Initiation of penalty proceedings under section 270A. Issue-wise Detailed Analysis: 1. Taxability of System Fund Support Fee and Technology Services Fees: The primary issue revolves around the addition of INR 28,11,42,298 made by the AO in respect of receipts on account of Marketing, Distribution Marketing, Frequency Marketing Programme (IHG Rewards), and SCHI Facility charges (Technology Services Fees). The AO and DRP treated these fees as Fee for Technical Services (FTS) under section 9(1)(vii) of the Income Tax Act and as Fee for Included Services (FIS) under Article 12 of India-USA DTAA. The assessee argued that these services are neither technical nor consultancy in nature, nor are they ancillary and subsidiary to the application or enjoyment of the right, property, or information for which royalty is received. Furthermore, these services do not make available any technical knowledge, experience, skill, know-how, or processes. The Tribunal noted that the issue of taxability of Marketing and reservation related receipts has been consistently held in favor of the Assessee in previous years by various judicial bodies, including the ITAT in the Assessee's own cases for multiple assessment years. The Tribunal also observed that the DRP's reliance on past orders, which have been decided in favor of the Assessee, supports the non-taxability of these receipts as FTS or FIS. 2. Taxability of Travel Agent Commission (TACP): The second issue concerns the addition of INR 10,02,93,045 related to Travel Agent Commission (TACP) received from third-party Indian hotels. The AO held that TACP is taxable as FTS/FIS under the Act and the India-USA DTAA. However, the CIT(A) in the Assessee's own case for earlier years had held that TACP is not in the nature of FTS, a position accepted by the tax department. The Tribunal noted that the Assessee did not render any service to the Indian hotels as envisaged under section 9(1)(vii) of the Act. Instead, the Assessee made payments to travel agents on behalf of the Indian hotels and subsequently recovered these payments on a cost-to-cost basis without any element of income. The Tribunal also referenced multiple judicial precedents that held commission charged by commission agents outside India is not taxable in India. Based on these observations, the Tribunal concluded that the amount charged by the Assessee as TACP cannot be treated as FTS under the provisions of section 9(1)(vii) of the Act. 3. Charging of Interest under Section 234A and 234B: The Tribunal did not provide a detailed analysis on this issue, but it was implicitly resolved in favor of the Assessee as the additions to income were deleted. 4. Initiation of Penalty Proceedings under Section 270A: Similarly, the Tribunal did not delve into the specifics of this issue. However, given the favorable outcome for the Assessee on the primary issues, the initiation of penalty proceedings under section 270A would be rendered moot. Conclusion: The Tribunal allowed the appeal of the Assessee, concluding that the System Fund support fee and Technology Services Fees, as well as the TACP, are not taxable under the provisions of the Income Tax Act and the India-USA DTAA. The order was pronounced in the open court on 09/05/2024.
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